Circuit City in bankruptcy

Analysts say retailer may survive if vendors cooperate

Circuit City Stores, the 59-year-old seller of televisions and computers, filed for bankruptcy Monday, becoming the biggest retail casualty of the slowing U.S. economy and frozen credit markets.

The chain sought Chapter 11 protection after suppliers -- concerned about declining sales at almost 1,500 U.S. and Canadian stores -- cut off credit and demanded up-front cash for shipments. The retailer aims to win support from suppliers for a reorganization plan that may allow it to exit court protection by June, its lawyers told a judge Monday.

"It's all about the vendors," said Paul Traub, a bankruptcy attorney with Dreier LLP who isn't involved in the case. "If the vendors want to support this business, it may survive."

Circuit City, the biggest electronics retailer in the United States until the mid-1990s, is losing market share to Best Buy and Wal-Mart, while online retailers such as Amazon.com undercut its prices. The company owes $119 million to Hewlett- Packard, the world's largest maker of personal computers, and $116 million to Samsung Electronics, the top maker of flat-panel displays, according to a filing.

Vendor concern that Circuit City wouldn't be able to pay its bills "escalated considerably" in the past week, the company said in its filing. It will attempt to reorganize either by shedding stores and finding a buyer for a slimmed-down version of itself, or by remaining as a stand-alone retailer, lawyers told U.S. Bankruptcy Court Judge Kevin Huennekens in Richmond, Va., where Circuit City is based. The company plans to stay in business while restructuring.

The company, founded in 1949 when Samuel Wurtzel opened the city's first retail TV store, has lost more than $5 billion in stock-market value in two years. Shares fell 14 cents to 11 cents before the start of trading on the New York Stock Exchange. The NYSE halted buying and selling of the shares after that early plunge.

Circuit City said it owes about $650 million to suppliers, with electronics manufacturers Sony, Zenith, Toshiba, Garmin and Nikon among the creditors. The retailer listed $3.4 billion in assets and $2.32 billion in liabilities.

The company said Bank of America Corp. arranged $1.1 billion in bankruptcy financing to replace a $1.3 billion line of credit.

Management tried to sell the company in May after Blockbuster made a preliminary offer that was later withdrawn. The retailer fired higher-paid workers and opened smaller stores to cut costs. Until the shift, the company's strategy had been to use locations as large as 44,000 square feet.

Circuit City is a well-known brand and could re-emerge from bankruptcy, Stifel Nicolaus & Co. analyst David Schick said in a note to investors, according to the Associated Press. "We believe the marketplace has a slot for a higher-end chain with a commissioned sales force," he wrote.

But JPMorgan analyst Christopher Horvers told AP reporters that it boiled down to merchandise. "If they can get inventory into the stores, I think they'll remain competitive."